New Measures dealing with Personal Insolvency & Bankruptcy

Personal Insolvency Bill

The Personal Insolvency Bill was published in late June 2012.

It provides new and more flexible options to address the difficulties of people in financial distress and insolvency. The area of bankruptcy/personal insolvency in Ireland has been in need of reform for a long time and the Personal Insolvency Bill provides for comprehensive reform of those areas.

The Bill is designed to tackle the problem of personal over-indebtedness, particularly in relation to unsustainable mortgage debt. Once in force, the legislation will have a substantial effect on the circumstances of people in financial distress, banks and the wider economy.

The main provisions of the bill are:

Debt Relief Notice

This procedure allows for the write-off of what are known as “qualifying debts” of up to €20,000.00, subject to a three year supervision period.

Qualifying debts include credit card debt, an overdraft or unsecured bank loan, utility bills or rent bills. They may include secured debt.

To avail of this option, debtors must have qualifying debts of €20,000.00 or less, a net disposable income of €60.00 or less per month, assets or savings of €400.00 or less. They must be insolvent and have no realistic prospect of being able to pay their debts within 5 years of the date of application for the Debt Relief Notice.

Only one Debt Relief Notice is permitted for a person for their lifetime and a person may not enter into the Debt Relief Notice process within 5 years of completion of a Debt Settlement Arrangement or Personal Insolvency Arrangement.

Debt Settlement Arrangement

This is a regime which provides for the agreed settlement of unsecured debt over 5 years.

A person who owes over €20,000.00 in unsecured debt to one or more creditors may apply to avail of a Debt Settlement Arrangement. If the arrangement is accepted by the creditors and the debtor complies with the arrangement for a period of 5 years, then the balance of the debtor’s debts covered by the arrangement will be discharged.

Whilst a Debt Settlement Arrangement is in effect then no unsecured creditor bound by it (including those who voted against it) may take action against the debtor.

Again, only one Debt Settlement Arrangement is permitted within a debtor’s lifetime.

Personal Insolvency Arrangement

A significant new relief in the legislation is the Personal Insolvency Arrangement (PIA) which is aimed particularly at mortgage holders with substantial arrears on their loans and who are in negative equity.

A PIA allows for private individuals to enter into a scheme of arrangement with their creditors which allows for an element of debt-forgiveness.

It allows a debtor to pay creditors a portion of what is due to them over, for example, a six year period and then be discharged from further liability.

The Bill, whilst discouraging the use of bankruptcy, at the same time provides for automatic discharge from bankruptcy, subject to certain conditions, after 3 years, compared to 12 years at present. This development will bring Ireland in line with other European countries.

A new “Insolvency Service”, to be established under the Bill, has a role in overseeing the procedures set out in the legislation.

On publishing the Bill, the Minister for Justice and Equality and Defence, Alan Shatter TD, stated his opinion that “the new personal insolvency laws, including the reform of bankruptcy law, will, in addition to providing new legal remedies, also provide a significant incentive for financial institutions to develop and implement realistic agreements to resolve debt issues with their customers. The provisions relating to a Personal Insolvency Arrangement are specifically designed to facilitate a debtors continued ownership and occupation of his principal private residence unless the debtor does not wish to do so or the costs of the debtors continuing to reside in it are disproportionately large."

Minister Shatter added that the Bill provides “concrete options for those genuinely unable to discharge their financial obligations as opposed to those who can but won’t do so."

It should be noted that the Bill does not provide for the automatic writing-off of negative equity, where a person is in such a situation. Where a person is in a position to make repayments on their mortgage or other debts, they must continue to do so. The Bill does not relieve solvent debtors of their responsibility to meet their contractual obligations.